Computer Associates Pays Wyly
To End Proxy Fight for 5 Years

Dissident investor Sam Wyly accepted a $10 million payment from Computer Associates International Inc. to abandon his proxy battle with the big software maker, raising questions from corporate-governance reformers whose ideas he championed.

Mr. Wyly, who had advocated board independence and railed against big payments to executives as he fought to unseat members of the Computer Associates board, also pledged not to launch any takeover battles or proxy fights for five years.

As part of the deal, Computer Associates, whose stock has been suffering amid a string of losses and a federal investigation of its accounting, also agreed to add an independent director to its 11-member board shortly after the company's annual meeting Aug. 28. Mr. Wyly will have no say over the new nominee but took credit for the company's pledge to add another board member.

The company said the deal benefited shareholders by avoiding a management distraction, and saved the company the cost of fighting Mr. Wyly. But shareholder advisers blasted both sides for reaching a closed-door deal and likened the payment to stock awards popularized by takeover targets in the 1980s to ward off takeover artists.

"It's a strange thing to prove your commitment to corporate governance by paying greenmail to a noisy investor," said Pat McGurn, of Institutional Shareholder Services, a proxy advisory firm that backed Mr. Wyly's prior proxy effort last summer. "This says as much about CA as it does about Sam Wyly. I would rather have had the $10 million paid out as a dividend to shareholders."

PROXY PROBLEMS   • Investor Group Targets Member of CA's Board1 07/18/02   • Computer Associates Names Directors Before Proxy Battle2 07/1702   • Investor Group Backs Management of CA in Proxy Fight3 06/28/02

"This payoff raises deep concerns about behavioral governance problems at Computer Associates," said Ted White, director of corporate governance for the California Public Employees' Retirement System, or Calpers, which owns 5.76 million CA shares. He called the payment "offensive" to shareholders.

The $10 million payment, in addition to obtaining the no-fight pledge, extends for two years an existing noncompete agreement Mr. Wyly signed when he sold a company he managed, Sterling Software Inc., to Computer Associates for about $3.9 billion in March 2000. As part of the Sterling sale, Mr. Wyly had signed the five-year pledge in exchange for nearly $16 million, according to regulatory filings, 25% of which was slated to cover Mr. Wyly's noncompete pact.

Mr. Wyly's slate of four board nominees lost by a margin of more than three to one last year and his latest five-nominee slate was facing an uphill battle. He "clearly had no way to win this fight," said Heather O'Loughin, an analyst for State Street Global Advisors, which owns 2.2% of Computer Associates shares. "It's a modest way for Sam Wyly to declare victory and close the book on this chapter."

The agreement came early Wednesday after days of negotiations between Mr. Wyly and Computer Associates Chief Executive Sanjay Kumar, according to Stephen Perkins, president of Ranger Governance Ltd., an arm of Mr. Wyly's Dallas-based hedge fund.

Both Computer Associates and Mr. Perkins rejected the assertions of corporate-governance advocates. "I don't care what they conclude," said Mr. Perkins, "I'm very confident that we advanced the ball on corporate-governance issues and that this is good for CA holders and good for Ranger." Said Charlie Holleran, a spokesman for Computer Associates, "This is not greenmail."

Write to Jerry Guidera at jerry.guidera@wsj.com⁴

Updated July 25, 2002